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Methods of Conducting Business in Malaysia

 

1 Methods of Conducting Business in Malaysia

In Malaysia, a business may be conducted:-

  • By an individual operating as a sole proprietor
  • By two (2) or more (but not more than 20) persons in a partnership
  • By a limited liability partnership (LLP)
  • By a locally incorporated company or by a foreign company (i.e. branch office) registered under the provisions of the Companies Act, 1965
2 Sole Proprietorship and Partnership

All sole proprietorships and partnerships must be registered with the Companies Commission of Malaysia (CCM) under the Registration of Businesses Ordinance, 1956. In the case of partnerships, partners are both jointly and severally liable for the debts and obligations of the partnership, should its assets be insufficient. Formal partnership deeds may be drawn up to govern the rights and obligations of each partner, but this is not obligatory. In the event of the death of an individual partner, the partnership is dissolved unless the partnership agreement specifically provides otherwise. A partnership is not required to file its financial statements in any public registry or to publish them in any other way.

3 Locally Incorporated Company
Company Structure

The Companies Act, 1965 governs all companies in Malaysia. The Act stipulates that a person must register a company with the CCM before it can engage in any business activity. It provides for three (3) types of companies:-

  1. A company limited by shares where the personal liability of its members is limited to the par value of their shares and the number of shares taken or agreed to be taken by them
  2. A company limited by guarantee where the members (shareholders) guarantee to meet liabilities of up to the amount nominated in the company’s Memorandum and Articles of Association in the event of the company being wound up
  3. An unlimited company where there is no limit to the members’ (shareholders’) liability
Company Limited by Shares

The most common company structure in Malaysia is a company limited by shares. Such limited companies may be either privately-held (Sendirian Berhad or Sdn. Bhd.), or public-listed (Berhad or Bhd.) companies.

A company having a share capital may be incorporated as a private company if its Memorandum and Articles of Association:-

  1. Restricts the right to transfer its shares
  2. Limits the number of its owners to 50, excluding employees and some former employees
  3. Prohibits any invitation to the public to subscribe for its shares and debentures
  4. Prohibits any invitation to the public to deposit money with the company

A public company may be formed or, alternatively, a private company may be converted into a public company subject to Section 26 of the Companies Act, 1965. Such a company can offer shares to the public provided:-

  1. It has registered a prospectus with the Securities Commission
  2. It has lodged a copy of the prospectus with the CCM on or before the date of its issue.

A public company can apply to have its shares quoted on Bursa Malaysia Berhad subject to its compliance with the requirements laid down by the exchange. Any subsequent issue of securities (e.g. by way of rights or bonus, or arising from an acquisition, etc.) requires the approval of the Securities Commission.

Procedure for Incorporation

To incorporate a company, a person must apply to CCM using Form 13A together with a payment of RM30 in order to determine if the proposed name of the intended company is available.

A person must then lodge the following documents with CCM within three (3) months to secure the use of the proposed name:-

  1. Memorandum and Articles of Association (M&A)
  2. Declaration of Compliance (Form 6)
  3. Statutory declaration by a person before appointment as a director, or by a promoter before the incorporation of a company (Form 48A)

The M&A documents the company’s name, its objectives, the amount of its authorised capital (if any) proposed for registration and its division into shares of a fixed amount.

The Articles of Association describes the regulations governing the internal management of the affairs of the company and the conduct of its business.

Capital duty for the authorised capital must also be paid to the CCM.

Once the Certificate of Incorporation is issued, the subscribers to the Memorandum, together with such other persons who may from time to time become members of the company, shall be a body corporate, capable of exercising the functions of an incorporated company and of suing and being sued. It has a perpetual succession under common seal with the power to hold land, but with such liability on the part of the members to contribute to its assets in the event of it being wound up, as provided for in the Companies Act, 1965.

Requirements of a Locally Incorporated Company

A company must maintain a registered office in Malaysia where all books and documents required under the provisions of the Act are kept. The name of the company shall appear in legible Romanised letters, together with the company number, on its seal and documents.

A company cannot deal with its own shares or hold shares in its holding company. Each equity share of a public company carries only one vote at a poll at any general meeting of the company. A private company may, however, provide for varying voting rights for its shareholders.

The secretary of the company must be a natural person of full age who has his principal or only place of residence in Malaysia. He must be a member of a prescribed body or is licensed by CCM. The company must also appoint an approved auditor to be the company auditor in Malaysia.

In addition, the company shall appoint at least two (2) directors who each has his principal or only place of residence within Malaysia. Directors of public companies or subsidiaries of public companies normally must not exceed 70 years of age. A company director may also be a shareholder.

Establishment of Foreign Branch Office

Foreign companies incorporated outside Malaysia that intend to establish a branch office in the country must register with CCM. The same registration procedures pertaining to the registration of a locally incorporated company apply, whereby an application must be submitted in Form 13A to the CCM headquarters in Kuala Lumpur or any of its branch offices in Malaysia, with a payment of RM30. If the intended name of the foreign company is available, the application will be approved and the name reserved for three (3) months.

Upon approval, applicants must lodge the following documents with the CCM:-

  • A certified copy of its Certificate of Incorporation (or a document of similar effect) from the country of origin
  • A certified copy of its Charter, Statute, or M&A, or any other instrument that constitutes or defines its constitution
  • A list of its directors and certain statutory particulars regarding them (Form 79)
  • Where there are local directors, a memorandum stating the powers of those directors
  • A Memorandum of Appointment or Power of Attorney, authorising one or more persons resident in Malaysia to accept on behalf of the company the service of process and any notices that may be served to the company
  • A statutory declaration in the prescribed form made by the agent of the company (Form 80)

The appointed agent will agree to undertake all acts that are required to be carried out by the company under the Companies Act, 1965. Any change of agents must be reported to the CCM.

Registration fees are payable in accordance with a graduated scale set by the CCM based on the authorised capital of the parent company.

The process of registering a branch office takes one (1) month and upon registration, the CCM will issue the registration certificate of a foreign company (Form 83).

Every foreign company shall, within a month of establishing a place of business or commencing business within Malaysia, lodge with the CCM the registration notice of the location of its registered office in Malaysia, by using the prescribed form.

A foreign incorporated company must file a copy of its annual return each year within one (1) month of its annual general meeting. The company must also file a copy of the balance sheet of its headquarters, a duly audited statement of assets used, and liabilities arising out of, its operations in Malaysia, as well as a duly audited profit and loss account within two (2) months of its annual general meeting

4 Equity Policy

The Companies Act, 1965 does not stipulate any equity conditions on Malaysian incorporated companies. However, to increase local participation in business, the government encourages joint-ventures between Malaysian and foreign investors.

Foreign Investment Committee Equity Guidelines

The Malaysian Government has liberalised its policy on foreign equity participation in businesses in Malaysia as one of its strategies to continuously attract new investments into the country.

In 2004, the Foreign Investment Committee (FIC) had liberalised its policy on foreign equity participation to allow foreigners to hold up to 70% of the equity in a Malaysian company. Of the remaining balance, 30% has to be allocated to Bumiputeras (Malaysians of indigenous origins).

Nevertheless, to promote selected strategic services sectors, up to 100% foreign equity participation is allowed in the case of companies that are granted incentives under the Promotion of Investments Act, 1986. These include Market Support Services, Central Utility Facilities and other specialised services, except for Integrated Logistics Services (ILS) where foreign equity participation of up to 40% is permitted.

However, some types of business operations in Malaysia are required to comply with specific equity conditions when applying for operating licences, permits and approvals. Such business operations include those in the logistics, distributive trade and industrial training sectors. 

5 Licences Issued by State Authorities
Business Premise and Signboard Licence

Companies intending to set up a physical office may require a business premise licence and a signboard licence from the respective local authorities, depending on the nature of the business activity.

There are 147 local authorities in Malaysia. The requirements to obtain a business premise licence and a signboard licence may vary according to each local authority. Applicants are advised to contact the local authority where the company will be located on the requirements.

An application for a business premise licence and a signboard licence must be accompanied by the following documents:-

  1. A photocopy of the applicant’s identity card
  2. A passport-sized photograph of the applicant
  3. A copy of the company’s M&A and Forms 9, 24 and 49
  4. A copy of either the rental agreement or the sales and purchase agreement of the company’s business premise
  5. A copy of the Certificate of Fitness of the company’s business premise
  6. A copy of the Fire Department’s support letter
  7. A copy of the location plan of the company’s business premise
  8. Photographs of the business premise
  9. Photographs showing the location of the company’s signboard
  10. Samples of the signboard indicating its design and colours
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Last Updated : Monday 15th October 2018